National news exposed another monster rearing its ugly head to drown already flailing debtors.

The New York Times reports today that wage garnishment is on the rise: up 30 to 120% depending on the state. This news comes as a kick to debtors who are already down, buried in insurmountable debt.

Under federal law, the garnishor must leave the debtor with 30 times the federal minimum wage per week. However, when taking into consideration the federal minimum wage is $7.25 per hour, this means the creditor only has to leave the debtor $217.50 per week to live.

In Florida, creditors can garnish up to 25% of a debtor’s disposable income, which means if you make $800 a week after taxes, they can garnish up to $200 of your paycheck every week until the debt is paid. Debtors are only allowed to take the lesser of the two, which usually results in them following the 25% option. But losing even 25% of their income is a devastating blow to debtors who are already struggling to keep their head above water.

Banks claim the problem is the debtors, who refuse to return phone calls and ignore lawsuits. In the long run, ignoring the lawsuit actually creates a larger problem for the debtor. Banks get default judgments and collect astronomical interest rates on the debt as high as 79.9% per year. Those kinds of rates are enough to make organized crime syndicates smile.

On top of that they tack on outrageous attorneys fees, because the debtor is not showing up to fight. In many cases, the banks are able to get a default judgment without ever having to prove the debt, much less justify to a judge the fees and penalties they are charging.

Judges who hear these cases urge debtors to fight back. Many say when the debtor forces the creditor to prove the debt, the creditor is unable to produce proof and the case is dismissed. In fact, because debt collectors purchase many of these debts for cents on the dollar, the debt collectors have little if any of the necessary documentation to win the lawsuit. Thus, the collectors are betting on the fact that the debtor is too scared to respond.

In addition, some sympathetic judges will throw out the case if the debtor has paid back more than the debt originally owed, especially when the bank is still coming after them for outrageous fees.

One judge called the actions of the banks “unconscionable.”

Oppenheim Law advises debtors to also beware if they do go to court to represent themselves. Many times they are ambushed by collection lawyers and enticed to sign settlement agreements that are not in their favor. Furthermore, once a debtor negotiates the debt, they have entered into a new contract with the creditor. This resets the amount of time the creditor has to collect on the debt if the debtor defaults under the settlement agreement.

All in all, it appears debtors may have a new battle to fight. In addition to foreclosure, bankruptcy and unemployment, for those who are lucky enough to still have a job, some may soon see their paycheck disappearing before their eyes.

From the trenches,

Roy Oppenheim